Crowdfunding Platforms Crack Down on Risky Campaigns

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It’s a story that’s become routine: A crowdfunding campaign whips up a flurry of excitement, receives a deluge of funds, and then collapses with nothing to show for it. It’s what happened to Central Standard Timing, which raised over $1 million for the “world’s thinnest watch” before filing for bankruptcy in 2016. It’s the story behind Taxa, a Kickstarter-backed company that just closed shop last month, ending its dream of bioengineering glowing plants. It was almost the fate of a $13 million campaign to produce the world’s smartest cooler, which had to ask backers for more money years after its campaign was over. When platforms like Kickstarter and Indiegogo first emerged, they promised to democratize entrepreneurship. Anyone with a great idea could have a shot at raising capital and building a product. But almost a decade later, the platforms’ high-profile failures loom at least as large as their successes. Improving the hit rate of some of the riskiest ventures, such as high-tech hardware projects like smartwatches, has become a top priority.

Mark Harris is a freelance journalist reporting on technology from Seattle.

Today, Kickstarter has started offering its inventors access to experts in design and manufacturing. (Indiegogo launched a similar program last summer.) These services include a detailed design review of electronics, global sourcing of components and manufacturing, and even assistance with branding, distribution — the kind of information that is often jealously guarded by large multinationals.

The effort comes not a moment too soon. Every week produces bad news for the platforms: Indiegogo just pulled the campaign of the Titan Note, a transcription tool hawked with unrealistic features, while Kickstarter’s Gravity, a weighted blanket, caught negative press for making wild claims about its curative powers.

Success will take more than just leaving the snake oil behind. These platforms will have to harness their creativity with credibility, their enthusiasm with expertise. Crowdfunding platforms have the potential to transform our economy by democratizing entrepreneurship—but only if they figure out how to grow up.

Last year I had a unique opportunity to examine the collapse of one high-profile project: the Zano drone. Kickstarter hired me, as a journalist, to investigate why its largest European project to date ended up delivering only a handful of ineffectual drones before filing for liquidation. Zano’s creators, a small Welsh company called Torquing Robotics, scored £2.3 million (then $3.5 million) from 12,000 backers and burned through all of it, plus a million more in debt.

I concluded that Torquing’s founders had never possessed the skills or experience needed to pull off their project. They claimed their Zano miniature quadcopter could follow users automatically, avoid obstacles, and even take video selfies. A misleading video overstated the drone’s initial abilities, while the massively successful crowdfunding campaign created its own problems, by introducing “stretch goal” features and the need to manufacture on a scale 10 times larger than the company had anticipated.

My report on Zano recommended that “crowdfunding platforms…should reconsider the way that they deal with projects involving complex hardware, massive overfunding, or large sums of money. There should be better mechanisms to identify weak projects before they fund, as well as new processes to provide mentorship, support, and expert advice to newly-funded projects.”

Anyone can come up with a cool idea. Even cobbling together a prototype with 3D printers is pretty straightforward these days. But translating that vision into thousands of reliable, affordable products — and before a more established company (or Chinese imitator) steals your thunder—remains frighteningly complex.

Indiegogo was first to try to bridge that gap. Last summer, it formed a partnership with Arrow, an electronics design and engineering firm. Arrow provides all creators of electronics products a free review of their design and “bill of materials”—the full list of components inside. It checks their availability and gives an estimate for purchasing and manufacturing costs.

In return, Arrow hopes that some of those estimates will turn into purchases through them. Indiegogo recently announced a similar partnership with Riverwood Solutions, connecting creators with off-shore manufacturers in China, Mexico, or Southeast Asia. Backers can see on Indiegogo which campaigns have benefited from the expert input.

“We have learned that there is a long road from having a working prototype to having a manufactured product,” says David Mandelbrot, Indiegogo’s CEO. “The parts an entrepreneur has in their prototype might be very different from the parts they would need in a manufactured product. Not having done this before, they just aren’t aware of those things.”

Kickstarter project Scansorial used Dragon Innovation to bring its product to life.

Scansorial

As of today, Kickstarter has a similar set of partners. Avnet is one of the world’s largest distributors of electronic components, and Dragon Innovation was set up specifically to work with crowdfunded companies like Pebble and MakerBot. Anyone planning a hardware campaign can use an online toolkit with tutorials and webinars from Dragon and Avnet engineers, Kickstarter staff, and creators of past successful campaigns. Those planning larger or more complex projects can apply for a mentorship program that gives individual access to engineers, as well as software tools like Dragon’s Product Planner to help select parts and estimate costs. Again, all these services are free to creators — the companies expect many to sign up for paid services as their products come to life.

Avnet has already helped a dozen or so crowdfunded companies develop their products, and expects the Kickstarter partnership to deliver many more. “The goal here is to get as many startups and creators to engage with the program before they launch,” says Kickstarter’s Terra.

But it is still early days for this new collaborative model. “It’s too soon for us to be measuring the impact [of the Arrow partnership], as a full life-cycle from campaign to shipping is usually a year or more,” says Mandelbrot of Indiegogo. “But we will be measuring it.” Of course, not all business challenges can be assuaged by reviewing manufacturing plans. All the existing partnerships can do is ensure that if a project does fail, it won’t be because the electronics were badly designed or poorly made.

So crowdfunding platforms are inevitably already thinking about extending advice beyond design and manufacturing. Kickstarter and Indiegogo both have multiple retail partnerships to help creators sell products once they have satisfied their backers. Indiegogo also offers digital marketing services.

We may be moving from a world dominated by a few gargantuan electronics multinationals to one with a bewildering diversity of brands, but built upon a similarly small number of platforms: from Apple, Samsung, and Sony to Kickstarter, Foxconn — not only the maker of Apple products but also a gargantuan contract manufacturer — and Amazon, which already has a section dedicated to crowdfunded products. Ultimately, even today’s market leaders might seek validation from the crowd before launching a new smartphone or gaming device.

But none of this will happen at internet speed. It will be a slow transition, with plenty more crash-and-burn crowdfunding campaigns to come. I asked Julio Terra if Kickstarter would ever require projects with extreme levels of funding (or those making extreme claims) to use its new design and manufacturing tools. He responded with caution. “It’s not something we will ever force,” he says. “But we will suggest.”